Sony Discussing Loeb Proposal as Weaker Yen Boosts Forecast

A man tries on a Sony Corp. Personal 3D Viewer HMZ-T1 on display at the company's head office in Tokyo. Photographer: Junko Kimura/Bloomberg

Aug. 2 (Bloomberg) -- Sony Corp.’s board is “deepening”
its discussions of billionaire investor Daniel Loeb’s proposal
to sell part of the entertainment business, the company said
after raising its full-year revenue forecast on the weaker yen.

Investors have asked for more information about the units
making films, TV shows and music, and Sony is getting input from
financial advisers, Chief Financial Officer Masaru Kato said at
the company’s earnings press conference yesterday in Tokyo. He
declined to comment on a timeframe for a decision. Loeb
questioned executives publicly yesterday on a conference call.

“It is an important proposal, and the board will make a
decision after having a thorough discussion,” Kato said. “The
discussions are only midway, and we cannot comment further.”

Japanese monetary policy is stoking the value of exports
for Sony, which gets almost 70 percent of revenue from overseas.
The company raised its revenue forecast by 5.3 percent to 7.9
trillion yen ($80 billion) for the year ending March 31, even
while cutting expected shipments of TVs, digital cameras and
personal computers as it tries to match Samsung Electronics Co.

“Currency weakness is the main driver here,” said Hideki
Yasuda, a Tokyo-based analysts at Ace Research Institute.
“They’ve cut unit sales forecasts for a lot of product
segments, so it’s not as though the fundamentals are really
improving, but the yen is lifting earnings.”

Chief Executive Officer Kazuo Hirai has said he doesn’t
plan to spin off entertainment assets as he builds services
linking mobile devices and TVs with content including movies.

The company cut its target for TV sales to 15 million units
from 16 million and lowered its projected digital-camera sales
to 12.5 million units from 13.5 million.

Beating Estimates

The stock rose 0.9 percent to 2,123 yen at the close of
trade in Tokyo. Sony shares have more than doubled this year as
Japan’s benchmark Topix index added 39 percent.

Sony reported first-quarter net income of 3.48 billion yen
in the three months ended June 30, compared with a loss of 24.6
billion yen a year earlier. Profit was expected to be 2.6
billion yen, according to the median estimate of five analysts
surveyed by Bloomberg News.

Operating profit, or sales minus the cost of goods sold and
administrative expenses, was 36.4 billion yen in the quarter.

Loeb’s Third Point LLC, with funds that control about 6.9
percent of Sony stock, said in May it wanted the Japanese
company to sell as much as 20 percent of its entertainment
assets in an IPO to improve the performance and raise cash to
revive electronics.

Picture Profits

Sony is working with Morgan Stanley and Citigroup Inc. to
study the proposal, people familiar with the matter said in May.

The company said the pictures unit posted a profit of 3.7
billion yen, compared with a loss of 4.9 billion yen a year
earlier, because of the currency decline.

In U.S. dollar terms, sales for the unit fell 16 percent.
After topping the U.S. box-office last year, Sony’s films have
fallen to sixth in 2013 after flops “White House Down” and
“After Earth,” starring Will Smith.

Sony Pictures said separately it will form a production
company with Tom Rothman, the former co-chairman of Fox Filmed
Entertainment. The venture, TriStar Productions, will make as
many as four films a year, as well as television programming.

Loeb, speaking on a conference call with overseas
investors, questioned Sony executives publicly for the first
time, asking about the profitability of Sony Pictures and the
outlook for the PlayStation 4 game console.

PlayStation Outlook

Without a $106 million gain from selling a music catalog to
a Canadian buyer, Sony Pictures wouldn’t have been profitable,
Loeb said during the question and answer session.

Demand for the PlayStation 4 looks “encouraging” and Sony
is “doing our best” to gear up manufacturing, executives said
in response to Loeb’s questioning. The console requires less
capital investment than its predecessor because it uses PC
technology, and outside manufacturers are supplying the chips.

The box-office duds prompted Loeb to devote more than half
of Third Point’s quarterly investor newsletter to Sony, as he
slammed the flops and “high salaries for underperforming senior
executives.” He said Sony’s entertainment profit margins lag
behind peers, and the unit needs closer supervision amid a lack
of franchises and bloated costs.

The music unit posted a 48 percent increase in earnings to
10.8 billion yen.

Smartphone Share

A combined entertainment unit, including music and
pictures, would be the second-biggest source of earnings, with
operating income of 14.5 billion yen trailing only financial
services. Operating income at the latter division, which sells
life insurance policies, jumped 67 percent to 46 billion yen.

Operating earnings from mobile products, including Xperia
smartphones, were 5.9 billion yen, compared with a loss of 28.1
billion yen a year earlier. Sales surged 36 percent on the
currency and higher prices for handsets, the company said.

Smartphone shipments in the quarter rose to 9.6 million
from 7.4 million a year earlier. Sony expects to sell 42 million
smartphones this year, it said.

Sony’s smartphone market share in the first three months of
2013 stood at 3.8 percent, little changed from 3.6 percent a
year earlier, according to data compiled by Bloomberg.

The company’s TV segment posted an operating profit of 5.2
billion yen, the first profitable quarter in three years.

Sony, which lost 762 billion yen selling televisions in the
past nine years, dropped to fifth in revenue share from flat-panel TV sales during the January-March quarter as it was
overtaken by China’s TCL Multimedia Technology Holdings and
Sharp Corp., researcher DisplaySearch said in June.

4K Televisions

The company in April started selling a 55-inch model using
a technology its dubs 4K for $5,000 after introducing an 84-inch
model for $25,000 in November.

“Sony is boosting new lineups such as 4K TVs but the
revival of the electronics operation is yet to be seen,” said
Junya Ayada, an analyst at Daiwa Securities Co. in Tokyo.

Hirai is preparing to release the PlayStation 4 console
this year to drive game earnings as consumers migrate to playing
games on mobile devices from Samsung and Apple Inc. Losses at
the gaming unit widened to 14.8 billion yen from 3.5 billion yen
a year earlier amid falling console sales.

Loeb praised Sony’s rollout of the PS4, which is due to be
released for the Christmas shopping season starting at $399.